iShares MSCI Japan Small-Cap ETF (SCJ)

The Japanese Government Pension Investment Fund is the world's largest pension fund with more than $1T in assets. It's no secret the fund's managers are planning to cut holdings of JGBs and boost allocations to domestic equities (among other assets), but the question is how much.

Expectations are for the GPIF to cut its JGB weighting to 40%, but chatter today says the fund plans to go as low as 25%, while ramping its Japanese stock holdings all the way to 25%.

Reuters reported yesterday that the GPIF hasn't waited for its review to be completed and has already cut JGB holdings down to just over half the portfolio, but it's not immediately clear where the fund has reallocated that money.

The Nikkei has slumped alongside Western markets over the past few weeks - down more than 10% - but gained 4% overnight following Friday's big rally in the States.

Also at work is a published report saying Japan's $1.2T Government Pension Investment Fund (GPIF) will boost its allocation target for domestic shares to about 25% from 12%. Foreign holdings of stocks and bonds will be lifted to a combined 30% from 23%, while holdings in JGBs will be cut to 40% from 60%.

The GPIF has been expected to announce a higher domestic stock target, but the 25% figure is likely toward the top end - if not exceeding - of market expectations.

Asian stocks trade mixed as a 14-year low in U.S. weekly jobless claims and talk of the Fed possibly extending QE helps provide balance to concerns about a possible recession and deflation in Europe, the Ebola scare, China's slowdown, and Japan's floundering economy.

The Nikkei closes -1.4% while Japanese bond prices rise, with the two-year yield dropping 3.6 bps to a record low of 0.005%.

"We need to see a period of better data from the U.S., and especially Europe, for markets to really calm and volatility to cool," says market strategist Chris Weston.

Nymex crude is +0.2% to $82.86 and Brent is +0.1% to $85.89, but the latter is still headed for a fourth consecutive weekly loss.

The Nikkei capped a tough week, falling 3% overnight with Obama's ordering of airstrikes in Northern Iraq a convenient excuse for the decline.

Today's session also happens to be the busiest earnings report day of the season and Nikon Corp. tumbled 9.4% after lower full-year guidance, Taiyo Yuden dove 8.9% after cutting its outlook, and Nisshin Steel plunged 9.8% after profit fell 99%.

The BOJ maintained its pledge to boost the monetary base by ¥60T-¥70T.

The dollar is weaker vs. the yen by 0.25%, with dollar/yen down to ¥101.83.

Japanese shares fell to a one-week low today and dropped to their largest one-day fall in three weeks after investors turned risk averse due to the downed Malaysian Airlines passenger jet shot down over Ukraine's eastern border.

The Nikkei sank 1% to 15,215.71, its lowest close since July 11. The index also fell 1.7% at one point during Friday's trading.

The Topix shed 0.8% to 1,263.29 at the close of trading in Tokyo. JPX-Nikkei Index 400 dropped 0.7% to 11,505.50.

Japanese shares rose today, with the Nikkei climbing 0.3% to 14975.97, after dropping 1.1% on Monday, although trading volume hit its two month low amid escalating tensions in the Middle East and Ukraine.

The Topix rose 0.3% to 1,238.20 at the close of trading in Tokyo, with 1.68B shares changing hands. JPX-Nikkei Index 400 also ended up 0.3% at 11,275.02.

The Government Pension Investment Fund should announce a reshuffling of assets in which, predicts Nomura, it would sell as much as $200B in domestic bonds to buy overseas assets. The team at Nomura sees the move as weakening the yen about about 10%.

If done at the right time, says Mitsubishi UFJ's Daisaku Ueno, dollar-yen could top ¥110 this year (¥102 at the moment).

A Bloomberg survey sees the fund cutting its local bond holding from 60% to 40%, and boosting its targets for foreign stocks to 17% and 14% (from 12% and 11%, respectively).

Also helping is Reuters reporting Japan Post Insurance - with about $846B in AUM - planning to boost its allocation in domestic stocks by as much as $3.4B this year. Also slated for a higher allocation are overseas bond holdings.

Among the leading decliners was SoftBank (SFTBF), -5.1% as investors sold the news on the Alibaba offering. Exporters tanked as well, with a 2.9% fall in Honda and 3.4% decline in Panasonic pacing those slides.

Buy the dip? Last night's 2.4% dive brought the Nikkei lower by about 7% for the week - it's worst 5-day stretch since the 2011 earthquake and tsunami. The index is now off about 14% YTD.

Maybe not helping is April 1's boost in the sales tax to 8% from 5%. The last previous sale tax boost in 1997 proved to be a rally-killer. "2014 is not 1997," says JPMorgan's Jesper Koll. "The probability of success is better than ever." We shall see.

Asian shares have traded mixed in a choppy session in which the Nikkei recovered to close up 1% after falling earlier in the day. Market players pointed to reinvestment by a public pension fund and short-covering as reasons for the reversal.

The Shanghai Composite fell 0.8% and the Hang Seng 0.2% as tech stocks took a beating following a bad debut on Wall Street for "Candy Crush" developer King Digital.

¥2.6T in QE later, William Pesak notes one year of aggressive monetary ease has failed to lift living standards, nor has it convinced companies to boost paychecks. The only inflation Japan is feeling is the kind no one likes: Higher energy prices.

BOJ Governor Kuroda's main achievement this year, argues Pesak, is to settle once and for al that the country's problem isn't the amount of yen sloshing around, but how it's used. Unless people borrow and banks lend, the economy won't revive. And don't forget the secular deflationary forces of an aging population and the rise of China.

The Bank of Japan has surprised markets by expanding lending facilities that are designed to spur corporate investment by offering low-interest loans to commercial banks in the hope that they will lend the money to businesses.

At a policy meeting, the BOJ doubled one program to ¥7T ($68B) and said individual banks could borrow twice as much under another facility.

The BOJ also maintained its program of increasing the monetary base by ¥60-70T a year.

The boosting of the lending facilities comes after data yesterday showed that Q4 GDP grew a less-than-expected 0.3%. Notwithstanding, the BOJ maintained its view that Japan is recovering moderately.

The move helped weaken the yen and the Nikkei to surge 3.3%. The USD-JPY is +0.6% at ¥102.57. (PR)

The soft growth adds to pressure on Prime Minister Shinzo Abe to detail reforms that will make Japan more competitive. This is especially the case with the upcoming rise in sales tax in April.

"This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April," says economist Takuji Okubo. "Abe really needs to be quick in showing to the market that he can deliver reform."

The data comes a day before the Bank of Japan is forecast to leave its monetary policy unchanged.

Despite the disappointing GDP, short covering helped the Nikkei end +0.6% following a day of choppy trading.

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